Two Evraz-linked companies, East Metals and Mastercroft, have approached the High Court to have the Evraz Highveld Steel and Vanadium (Highveld) business rescue plan declared invalid and for the October 13 vote by creditors supporting the plan to be set aside.

East Metals is a large creditor, while Mastercroft holds shares in East Metals and 85% of Highveld, which entered voluntary business rescue in April this year.

The two companies allege that there was a serious nondisclosure by the business rescue practitioners ahead of the vote, which materially changed the outcome.

The alleged nondisclosure related to an additional claim submitted by the South African Revenue Service (SARS), which altered the creditor dynamic and raised the overall creditor debt to nearly R2.4-billion from around R1.2-billion.

Had voting taken place on the debt outlined in the rescue plan, East Metals, whose debt stood at R378-million, would have constituted 32% of the total voting interest. This interest would have been sufficient to defeat the plan, with the approval threshold set at 75% of creditors’ voting interest.

In the event, more than 75% of all creditors and 90% of so-called independent creditors – which excluded related parties to Highveld, such as East Metals – supported the business rescue plan during the October 13 vote.

Therefore, the two Evraz-linked companies, which had expected to prevail in defeating the plan through the vote, approached the Pretoria division of the High Court with an application on October 21 to have the vote and the plan set aside.

Joint business rescue practitioner Piers Marsden said he was disappointed by Evraz’s actions, which were “clearly designed to frustrate the business rescue process”.

He noted that the Russian-linked company had indicated ahead of the vote that it favoured a winding up of the assets, despite business rescue being supported not only by creditors, but also labour and government.

“We will strongly oppose the court application and are hoping to find a resolution to ensure we can effectively execute the plan for the benefit of all stakeholders including creditors, shareholders, employees, suppliers and the community as a whole,” Marsden said.

The business rescue practitioners were preparing an answering affidavit, which should be submitted to the court within ten days.

Marsden told Engineering News Online that it had made good progress in addressing the various outstanding conditions precedent to a purchase of Highveld by International Resources Limited of Hong Kong, China. He also insisted that work would continue unless a court interdicted the practitioners from proceeding.

Under the plan, R350-million would be made available to settle creditor debts and a further R150-million to settle an emergency loan provided by the Industrial Development Corporation.

Creditors expected to receive between 15c and 29c in every rand owed. However, the additional R550-million SARS assessment raised against the company would lower the dividend to the bottom end of the range.

Besides the challenge from East Metals and Mastercroft, the plan could still also elicit legal action from a rival to the IRL bid.

In fact, Global Renewable Energy (GRE), which was offering creditors 100c in the rand, had also already sought an urgent court interdict preventing the creditor vote from taking place until its offer had been placed directly before creditors.

The application was set aside, with costs, for lacking urgency, but it was still possible that GRE would seek to have the matter heard on its merits.